Building Supply Chain Resilience and Reducing Risk Through Reshoring
jamesteohart/stock.adobe.com Many factors have converged to create an unusually high-risk environment for companies doing business on a global scale. Most recently, the conflict between Israel and Hamas threatens to have a destabilizing impact and create economic volatility in the region and beyond. This conflict adds to the long list of ongoing or potential new risks for global firms; the ongoing war between Russia and Ukraine, new international ESG regulations, reports of forced labor in China’s Xinjiang region and resulting regulation changes, and a slow logistical recovery from a multi-year pandemic have left supply chains highly disrupted. As a result, as companies look to adjust their supply chains to increase efficiency and reliability, the math on what geographies are considered too risky or not has changed. Sourcing teams are looking to assess where risk lies in our current moment and shift away from suppliers in those regions; in many cases, that means reshoring. What is Reshoring? “Reshoring” is the term we use when a company moves production back to its home country. This helps companies to keep a close eye on their supply chain and steer clear of the risks involved in areas of the world that have become more geopolitically or economically risky in recent years. Even some countries that have long been go-to outsource locations are being reassessed thanks to high levels of volatility. There’s also “friend-shoring,” which involves moving production from a potentially unstable country to a different, more friendly country or region, but not necessarily back to the company’s home nation. Naturally, this comes with a lesser degree of visibility and flexibility when working with suppliers (since there’s a geographic distance as well as additional country- or region-specific laws and regulations to follow), but in some situations moving to a place of lesser risk could be enough for the time being. How Reshoring Helps Supply Chain Resiliency With the last few years characterized by supply chain disruptions and increased political and logistical instability worldwide, the calculus has changed for risk managers and supply chain departments. The emphasis has been shifting from the lowest cost to the lowest risk and ensuring that operations can proceed as reliably as possible. It’s hard to overstate the negative impact of not being able to make a deadline due to supplies getting tied up in production. Partners and resellers will need to adapt and could drop a business that they no longer feel like they can rely on, and customers whose expectations aren’t met will be similarly quick to find a replacement brand. That’s why reshoring is being looked at closely by so many businesses right now; with physically closer suppliers, there’s less likelihood that products or materials will be caught up in a dispute half a world away or caught up behind a blockage of trade routes like we saw with the 2021 incident in the Suez Canal . It also means more control over the output (it’s easier to send a representative to regularly check in on production when it’s a few states away as opposed to half the world away) and fewer regulations to manage. With many countries introducing more regulations, in particular those intended to encourage more sustainable activity, compliance has been tougher than ever, and companies are relying on third-party partners to ensure they’re staying on the right side of all current and upcoming regulations. Reshoring is being used to make it easier for companies to keep up with changing consumer demands and meet deadlines; resilient supply chains are a cornerstone of a company’s success. This strategy is picking up momentum—take China, for example. Long an incredibly popular option for cheap overseas manufacturing, many companies have either moved some of their manufacturing from China back to the US or plan to do so in the next few years. While individual company stability is a major driver here, national security and the US’ overall economic health also play a part, with tensions around trade between the two major countries at a high point in recent years. According to a Kearney report, 96% of CEOs are seriously considering reshoring their operations—or have already done so or put plans in place for it. Compare that to 78% just a year before, and the trend toward reshoring is clear. Risks and Complications of Reshoring It’s no secret that in most countries, it tends to be more expensive to produce back home—that’s the whole driver for most outsourcing decisions in the first place. But the question has now become how much […]
